WeightWatchers 2003 Annual Report Download - page 84

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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
17. Financial Instruments (Continued)
Derivative Instruments and Hedging:
The Company enters into forward and swap contracts to hedge transactions denominated in
foreign currencies to reduce currency risk associated with fluctuating exchange rates. These contracts
are used primarily to hedge certain inter-company cash flows and for payments arising from some of
the Company’s foreign currency denominated obligations. In addition, the Company enters into interest
rate swaps to hedge a substantial portion of its variable rate debt. As of January 3, 2004, December 28,
2002 and December 29, 2001 the Company held currency and interest rate swap contracts to purchase
certain foreign currencies totaling $255,156, $92,936 and $204,276, respectively. The Company also held
separate currency and interest rate swap contracts to sell foreign currencies of $256,564, $96,051 and
$207,730, respectively. The Company is hedging forecasted transactions for periods not exceeding the
next 12 months. At January 3, 2004, the Company estimates that derivative losses of $270, net of
income taxes, reported in accumulated other comprehensive income (loss) will be reclassified to the
Statement of Operations within the next twelve months.
As of January 3, 2004 and December 28, 2002, cumulative losses for qualifying hedges were
reported as a component of accumulated other comprehensive loss in the amount of $443 ($270 net of
taxes) and $4,536 ($2,675 net of taxes), respectively. The Company discontinued certain of its cash flow
hedges that were associated with the euro denominated Notes that were extinguished, as described in
Note 6. As such, the Company has reclassified a net loss of $5,381 from accumulated other
comprehensive income to other expense, net. In addition, the Company has recorded net proceeds of
$2,710 from the gain on settlement in cash from financing activities in the Statement of Cash Flows as
cash flows from hedge transactions are classified in a manner consistent with the item being hedged. In
addition, the ineffective portion of changes in fair values of qualifying cash flow hedges was not
material. Prior to the extinguishment of the euro Notes, the Company hedged 24% of the outstanding
principal of the euro Notes via forward contracts, subsequent to the extinguishment the Company is
currently 100% hedged. As such, to offset gains or losses from changes in foreign exchange rates
related to the euro Notes for the fiscal years ended January 3, 2004 and December 28, 2002, the
Company reclassified $310 ($508 before taxes) and $2,258 ($3,702 before taxes) from accumulated
other comprehensive income (loss) to other expense, net.
For the fiscal years ended January 3, 2004 and December 28, 2002, fair value adjustments for
non-qualifying hedges resulted in a reduction to net income of $2,136 ($3,502 before taxes) and $2,082
($3,528 before taxes), included within other expense, net, respectively. In addition, for the fiscal year
ended December 28, 2002, the Company terminated all non-qualifying hedges resulting in an increase
to net income of $1,439 ($2,359 before taxes), included within other expense, net.
F-30